Stoppage may hurt credit rating

Qantas Airways
’ bet that grounding the airline would end the union campaign against it was backed by analysts and investors, who predict an arbitrated outcome will work in its favour.

But Standard & Poor’s and Moody’s Investor Services indicated they may cut the airline’s investment-grade credit rating on concerns over the severity of the public backlash to its 48-hour grounding. Fitch has also raised concerns.

More importantly, investor focus has shifted from the cost of lost bookings to the potentially positive results from the 21-day negotiating period or compulsory arbitration that will now take place. The shares rallied to close up 4.4 per cent on Monday to $1.61, a two-month high.

Andrew Sisson, founder and managing director of Balanced Equity Management, the carrier’s largest shareholder, predicted the short-term damage to the Qantas reputation could be repaired and that fellow investors would look past the dispute to the benefits of the overseas expansion strategy that sparked it.

“I think people will start concentrating on what the landscape is like after it all gets resolved rather than worrying about the short term," Mr Sisson said.

“It’s not irreparable. The fact of the matter is they needed to get to certainty. They’ve got there. It would’ve obviously been preferable if they could’ve got to this point in a less painful way but I don’t know if that was possible."

UBS analysts pointed to a “significant shift of power in favour of management" from the weekend’s actions and subsequent Fair Work Australia ruling, saying it was likely the three unions involved would seek a negotiated agreement with Qantas before they are required to enter compulsory arbitration.

“Union claims unrelated to pay, conditions, and productivity are unlikely to see success in arbitration and Qantas may be able to introduce productivity claims not previously under discussion," wrote UBS analyst Simon Mitchell.

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Goldman Sachs lowered its earnings forecasts for this financial year by 12 per cent to account for the cost of industrial action and lost business.

Even so, the stock is trading at a forward price-to-earnings multiple of about 9 times, well below global airline peers at about 13 times earnings, the broker said.

One transport analyst said it is particularly surprising
Virgin Blue
has not revealed how much it will benefit from the disruption.

“Qantas has said the dispute has cost them $68 million. The market is suggesting the earnings forecast for Virgin Blue for 2012 should be up 50 per cent even if they were to only get half of what Qantas has lost in revenue," the analyst said.

“I just don’t know why [Virgin chief]
John Borghetti
hasn’t come out and given a clear indication as to how much of that they are currently winning."